Governments must increase public investment to help drive the global recovery and help boost “less robust than expected” economic growth, said IMF chief Christine Lagarde.
The head of the Washington-based International Monetary Fund predicted global economic growth, which has been “subdued” in the first months of 2014, will strengthen in the second half and accelerate next year.
Growth in China, the world’s second-largest economy and a key driver of international trade, is unlikely to slow sharply and is moving into a “more qualitative and more sustainable” phase, Lagarde said.
But she warned loose monetary policies pursued by central banks to help the world economy recover from the global financial crisis were “finding their limit” and governments now needed to act.
“Global activity is picking up, but the momentum could be less robust than expected because potential growth is weaker... (and) investment remains lacklustre,” Lagarde told a conference in the southern French town of Aix-en-Provence.
“Evidently, from our point of view, we must therefore reinforce supply capacity in order to strengthen the recovery.”
She called for politicians to take advantage of “very favorable” conditions in financial markets to “revive public investments (to) give a necessary boost to growth, particularly in advanced economies” while ensuring debt remains at sustainable levels.
The IMF will give its official global economic forecasts in two weeks.
Last month the global crisis lender slashed its 2014 forecast for the US to 2.0 percent, down from 2.8 percent, after bad weather sparked an unexpected contraction in the first quarter.
Lagarde predicted growth would pick up in the next quarter as long as the US Federal Reserve’s tightening of its easy monetary policy is orderly and there is a precise medium term budget framework.
The Fed, like many central banks around the world, has kept interest rates at historic lows and pumped money into the US’s financial system to help drive growth.
Last month the European Central Bank cut its key interest rates, including taking one into negative territory for the first time, in a bid to help the region’s stalling economy emerge from the eurozone debt crisis.
In the 18 nations that share the single currency, which are only “slowly” emerging from recession, the “recovery is far from being enough to lower debt and unemployment,” Lagarde said.
Emerging economies, meanwhile, “continue to ensure most of global growth but at a slower pace than before,” Lagarde said.